Disallowance under Section 14A of Income TAx Act, 1961
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Where dis allowance was made by revenue under section 14A in respect of interest and administrative expenses, it was made clear that where assessee had its own surplus fund, then no question of any estimation of expenditure under rule 8D would arise. Thus, revenue was not justified in disallowing interest and administrative expenses, when the same was made out of interest free fund.
At the outset, the learned Authorised Representative submitted that the issue raised by the revenue in second ground of appeal stands covered by the decision of the co-ordinate Bench in assessee’s own case in ITA No. 615/Mum/2014 (AY-2010-11) order dated 4-11-2015
Disallowance u/s 14A & Rule 8D has to be made even if the assessee has not earned any tax-free income on the investment. . It was immaterial if dividend income was actually earned or not, which, rather, may be a consideration where the shares, as in the present case, are held to retain control over the investee company, i.e., for strategic reasons, as was the case with regard to the investment by Maxopp Investment Ltd. – one of the assessees in that case.
Where assessee had made investment in subsidiary companies not to earn tax free income but out of commercial expediency, no dis allowance under section 14A was called for.
CIT Vs M/s Essar Telehoding Ltd. (Supreme Court of India) Applying the principles of statutory interpretation for interpreting retrospectivity of a fiscal statute and looking into the nature and purpose of subsection (2) and subsection (3) of Section 14A as well as purpose and intent of Rule 8D coupled with the explanatory notes in the […]
Supreme Court (SC) Ruling – Whether the expenditure incurred (including interest paid on funds borrowed), while purchasing the shares/ stocks of a company for the purpose of gaining control over the investee company or as ‘stock-in-trade’ (i.e. as a business activity) and not as investment to earn dividends, can be treated as expenditure ‘in relation to income i.e. dividend income, which does not form part of the total income?
In case of group of companies, normally a company hold shares in various subsidiaries / group companies. The dividend paid by these group companies is exempt in the hands of the parent company under section 10(34) of the Income-tax Act, 1961 (Act).
M/s. Varsha Corporation Ltd. Vs. Dy. CIT (ITAT Mumbai) In the case under consideration, in the computation of income,the assessee had not claimed any exempt income. The expenditure claimed by it in the profit and loss account have not been shown to have been incurred for earning any exempt income during the year under consideration. […]
Where assessee had not earned any tax-free income, then, corresponding expenditure also could not be worked out for dis allowance.
ribunal followed its decision in M/s. Essar Teleholdings Ltd. v/s. DCIT to held that an amount disallowed under Section 14A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act.
